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2007
Tue
24
Apr
Miss Loi avatar

Money & Personal Finances – The Perils of Investing On Ignorance

(5)
Tuition given in the topic of E-Maths Tuition Questions from the desk of Miss Loi at 6:41 pm (Singapore time)

Miss Loi loves this kind of real-life question. Other than it having an equal chance of appearing in either Paper 1 or 2, it is more likely to help you later in life compared to those very important sure-to-come-out questions on trigonometry or quadratic equations.

So the story goes:

Mr Tan is a recent retiree with some money in his bank account that he had saved up throughout his working life. On day he received a glossy flyer from his bank highlighting an exclusive promotion for their Foreign Currency Fixed Deposits. Some of their attractive features include higher potential returns from higher interest rates and higher returns from currency appreciation compared to local currency fixed deposits.

Mr Tan was very interested and half-an-hour’s ‘research’ in the local newspaper later, he concluded that the British pound WILL rise in the foreseeable future. Though the exact reason behind this remained unknown to him, he ‘trusted’ what the expert analysts in the newspaper said. He further vindicated his decision with his coffeeshop friends, some of whom were ‘investment experts’ who had first-hand rumours from their undergrad son’s girlfriend’s aunty’s god-sister’s friend who works as a management trainee in some big foreign bank who also ‘agreed’ that the British pound WILL rise in the foreseeable future. Furthermore his coffeeshop friends told him they would SURELY invest themselves if they had the money that Mr Tan had.

Thus Mr Tan had a great smile and we shall now get into the question proper 🙂 :

At the beginning of 2002, Mr Tan buys some British pounds (£) with $33,000 Singapore dollars (S$) at the rate of £1 = S$3.03 and puts it on fixed deposits for 2 years at a compound interest rate of 9.87% (wow!) per annum.

  1. How much does he buy in British pound in 2002, correct to the nearest pound?
  2. Find the total amount in British pounds he had in his account at the beginning of 2004, correct to the nearest pound.
  3. During the two years, the value of British pounds fell against the Singapore dollar, so that, in fact when he sold the British pounds in 2004, he got only three quarter of what he would receive had he sold it in 2002. What was the rate of exchange in 2004, express £ in terms of S$? Give your answer correct to the nearest cent.
  4. Calculate the overall percentage gain/loss he made in this investment in foreign currency, correct to 3 significant figures.

For these kind of questions you (and Mr Tan) have to be very clear on how simple interests and compound interests work, amongst other things.

After you’ve gotten the answer, do you know who is smiling in the end? Mr Tan or the bank?

頑張って!!!

Revision Exercise

To show that you have understood what Miss Loi just taught you from the centre, you must:

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Comments & Reactions

5 Comments

  1. TSY's Avatar
    TSY commented in tuition class


    2007
    Oct
    28
    Sun
    10:13pm
     
    1

    lazy to do :X too much calculation, jus want to revise fast.

    The ans none.

    Miss Loi will be smiling.

    Well, i did a bit b4 i found it too long 😛

    My gut tell me it the bank. you can never trust when thing seem too good.

  2. Miss Loi's Avatar
    Miss Loi Friend Miss Loi on Facebook @MissLoi commented in tuition class


    2007
    Oct
    30
    Tue
    12:36am
     
    2

    Hey TSY (your nic sounds like ten-year series lol),

    You sound like one of those students who pretend to have done the homework but actually didn't do a thing! 😛 There's not really that much calculation involved.

    Part 1 is easy. Assuming the money changer didn't rip him off, Mr Tan will get S$33k/3.03 = £10891

    Part 2, your unbelievably-true-in-your-dream compound interest of 9.87% comes into play:

    Bank balance at the end of 2002
    = 1.0987 x £10891 = £11966

    Bank balance at the end of 2003 (i.e. beginning of 2004)
    = 1.0987 x £11966 = £13147

    So he has £13147 at the beginning of 2004

    Part 3 deals with stuff that the banks don't tell you.

    If he sold at the end of 2002, he'll get £11966 x 3.03 = S$36257

    But he sold at end of 2004, he only got
    0.75 x S$36257 = S$27192.75

    which means £13147 only yields S$27192.75,
    and the exchange rate has dropped to a shocking £1 = S$2.07

    Part 4 shows his whopping loss at:
    (33000-27192.75)/33000 x 100% = 17.6%.

    So your gut feel is right, and his undergrad son’s girlfriend’s aunty’s god-sister’s friend probably got a neat commission from the sale!

    P.S. Why would Miss Loi be smiling???

  3. TSY's Avatar
    TSY commented in tuition class


    2007
    Oct
    30
    Tue
    11:33am
     
    3

    lol. been using it since p4. ever since sec 3 some ppl call me tys for fun.

    anyways, i did tried to revise, but nothing catch my eyes.. lol

    Miss Loi will be smiling because..she making fun of him! lol

    anyways today paper i mess it up. when i finish the paper i have like 1hr left, then i rest a while before i start checking then i realise i miss 2 pages!

    I chiong to finish, in the end did two graph,realise it either OR qn after the exam finish.. never read lol. still have another 4 marks qn i nv do.. AHH!! die liao!

  4. Miss Loi's Avatar
    Miss Loi Friend Miss Loi on Facebook @MissLoi commented in tuition class


    2007
    Oct
    30
    Tue
    12:16pm
     
    4

    Hey the mighty Ten-Year Series cannot be disheartened!

    Results are not out yet. Time to burn your maths notes and focus on your remaining papers!

    P.S. Though Miss Loi may seem otherwise from time to time, she's actually a *cough*verynice*cough* person in real life, certainly not one to make fun of others 😀

  5. TSY's Avatar
    TSY commented in tuition class


    2007
    Oct
    30
    Tue
    12:42pm
     
    5

    lol, as if i believe. you just make fun of me T.T

    wonder to what extent i can trust your source. Any other source to cross-ref?

    Burn? OMGOSH!! THE FIRE GOT OUT OF CONTROL.. I GOING TO LOSE MY HOU..

    *run off before kana burn as well, hence can't complete my senten

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